In the beginning, it was great
Within the period of 2001 and 2010, business format franchising grew rapidly in Nigeria and the industry became the darling of many entrepreneurs. As a confirmation of the proven potential of the country’s franchise industry, it was reported that between 2010 and 2011 alone, the International Finance Corporation (IFC) invested a total of USD28.5 million in two of the country’s franchised quick service restaurants – Food Concept PLC and Tantalizers. However, things have taken the turn for the worse in recent years as the available performance records of some franchise systems in Nigeria call for serious worry.
For example, as reported by Nairametric – a leading financial resource firm in Nigeria – one of the largest player in the industry which was doing so well and attracted IFC to invest in it in 2010 has declared loses in the last four years consecutively (N303.3m in 2012, N564.8m in 2013, N784.2m in 2014 and N707m in 2015) totalling N2.36 billion (USD118,032,786).
In search of what went wrong
Worried by the reported loses and the apparent inability of the country to realize the huge potentials of her franchise industry, I embarked on and recently concluded a 3-year study, where we interviewed franchisees from across different brands and locations in Nigeria. The study unearthed four fundamental factors that have been responsible for the declining fortune of the country’s franchise industry. This article summarizes the findings of the study on one of the factors – relationship quality – and suggests innovative solutions for addressing it.
Relationship quality is a measure of satisfaction that people in a relational exchange feel towards each other and towards the object of their interaction. Even in the most advanced franchise systems like Australia, South Korea and the United States, the bedrock and critical prerequisite for success in franchising is high quality relationship between franchisors and their franchisees. A franchise arrangement with attributes of good quality relationship is one that delivers such benefits as effective cooperation between parties and successful long-term business operation. In particular, the success of franchisees’ outlets depends on the strength of the relationship they maintain with their franchisors. Excellent relationship also has significant impact on the two cardinal measures of long sustainability of a franchise system; franchisees overall satisfaction and intention to remain.
Moreover, my study established that at present, poor quality relationship characterizes most franchise systems in Nigeria. More than 75% of franchisees interviewed in our study indicated that current relationship with their respective franchisors is not at its best. Indeed, a number of franchisees are currently in courts with their respective franchisors as relationship became sour and couldn’t be resolved in-house. One of such franchisees put it this way,“we don’t have any good relationship now. The relationship became very toxic and we couldn’t get along. We are in the process of negotiating a settlement now. I don’t think I want to continue operating under their name but I want to remain in the restaurant business”.
Rebuilding business relationship in the industry
Based on the findings of my research, four key issues need to be addressed in order to rebuild and strengthen business relationship between franchisees and franchisors in Nigeria. This include trust, commitment, communication, and interpersonal relationship.
Essentially, trust is having faith in the goodwill of another. The current low level of franchisees’ trust in franchisors in the Nigerian franchise industry has resulted in several undesirable situations. As one franchisee lamented, “the low trust situation is paralyzing us. We have to always work out alternatives and provide contingencies for everything we have to do with them. We cannot really quantify the cost of this situation”.
To address the trust issue, there is a need for franchisors to take a long-term view of their relationships with franchisees right from when they join the system. The tendency to overpromise franchisees to lure them into the system and subsequently falter on commitment must be avoided. There should be a system of keeping tabs on responsibilities to be met to franchisees. Furthermore, franchisors need to treat trust-building as a strategic issue. Business processes and systems must be organized in ways that establish and maintain trust.
The second strategy for improving relationship in the industry is to enhance franchisors’ commitment to the success of franchisees. Franchisees require unbroken chain of guidance, mentoring and access to resources that are critical to their success. If they do not have these in the right quality and at the right time, the seed of discord is being sowed. Supports need to be delivered as at when due and new initiatives that assist franchisees to run a more profitable outlets must always be explored.
The third strategy for deepening relationship between franchisor and franchisees is for franchisors to enhance communication. Poor communication results in misunderstanding and misalignment of franchisees with system objectives and strategies. It is important to remember that the effectiveness with which franchisees carry out system strategy depends on how well they feel ownership of the strategy, so there is a need to involve them in taking major decisions. More specifically, there is a need to cultivate and sustain a culture of listening and efforts need to be made to reduce bureaucracy and establish proper channels of communication.
Lastly, it must be understood that franchisees care for a more intimate and reasonably informal interaction with their franchisors. Indeed, evidence shows that many franchisees do not join a franchise system for money, but for the love of the brand and opportunity to be part of network of people of like minds. A healthy level of interpersonal relationship enhances franchisees satisfaction in the relationship and gives them a sense of being treated as valuable members of the network. More so, efforts should be made to train and improve the interpersonal skills of franchisors’ compliance officers who regularly interact with franchisees.
This paper summarises the findings of my empirical research on how to rebuild relationship in the Nigerian franchise industry and reinvigorate it to optimally perform its roles of enterprise promotion and SME development. To rebuild relationship in the industry, suggestions have been offered to address trust issues, improve commitment of franchisors and enhance effectiveness of communication. Ideas were also offered to develop the critically important general interpersonal relationship between the two parties.
Adams Adeiza
